The “middle class” dominates political discussion, and the new Republican tax bill is no exception. This focus neglects those at the bottom, including the third of Baltimore’s households that earn less than $25,000 a year. While they pay little in income tax, we cannot ignore how the inequality perpetuated by this tax bill could exacerbate poverty in Baltimore’s vulnerable communities.
Maryland has the highest concentration of millionaires in the nation, even as 32.6 percent of Baltimore’s children live in poverty. The bill only widens the gap between low-income and privileged children. Baltimore’s millionaires will now be able to leave $11.2 million of their accumulated wealth tax-free to their children—up from $5.6 million in the status quo. This results in a wider wealth gap, reinforcing inequality. Wealth matters because it is a buffer against economic shocks, and enables long-term investments into education, new businesses, and retirement. Most egregious is the bill’s massive corporate tax cut. The cut will naturally increase corporate profits, but 91 percent of available corporate profits are currently directed to stock buybacks and dividends. Since the poor lack the financial resources to invest in stock, the tax cut only exacerbates the income gap.
Income inequality is more than an ideological issue, according to Nobel Prize-winning economist Joseph Stiglitz. In a world of limited resources, it ensures the rich can buy privileges for their children that the poor cannot afford, impeding social mobility. Poverty becomes concentrated in particular neighborhoods when only the rich can buy their way out. The exodus in turn weakens community institutions like stores and schools that provide essential support to families. Take, for instance, McElderry Park, a once middle-class neighborhood that descended into poverty with population loss. Higher income inequality also means higher political inequality—it increases the ability of rich donors to crowd out the poor’s already diminutive voices in policymaking. Ultimately, the bill buttresses rich children at the expense of poor children’s social mobility.
Furthermore, the revenue lost from tax cuts for the wealthy may soon be used to justify major cuts to vital anti-poverty programs. Republicans, including House Speaker Paul Ryan, have suggested changing the federal Medicaid and food stamp programs to state-controlled block grants. When Bill Clinton made similar changes to the cash welfare system in 1996, states siphoned off grant money to fill budgetary gaps, while inflation eroded the grant’s value. The poor may similarly lose out in the case of food stamps and Medicaid. This would directly affect the nearly third of Baltimore’s residents on Medicaid or food stamps.
A weaker safety net could also mean more family instability, detrimental to child development. Research by Kathryn Edin, a sociologist at Johns Hopkins University, shows that many impoverished single mothers see financial stability as a key prerequisite for marriage, a potential source of family stability. 64.8 percent of Baltimore’s children are in single-parent households, with the percentage at 93.5 percent in some neighborhoods. Cuts to anti-poverty programs as a result of the bill could severely affect these children’s futures.
It will be hard for states and localities like Maryland and Baltimore to compensate for any federal cuts with new or expanded initiatives. The bill’s cap on the State and Local Tax (SALT) deduction makes it politically difficult to raise taxes. Moreover, a bias against poor minority communities might already exist in public spending. City planners recently uncovered that Baltimore spends more on public infrastructure in low-poverty than high-poverty areas. Should federal cuts occur, we fear low-income minority neighborhoods will take the brunt of federal cuts with little help from the state or city.
To be sure, individual aspects of the bill soften rather than worsen inequality. Though capping SALT is problematic, the deduction is disproportionately used by the rich. The Child Tax Credit has also become temporarily more refundable for the poor, though its expansion to the wealthy is troubling. By themselves, these reforms might have been signs of progress. Unfortunately, they have only been stomached to pay for massive tax cuts for the rich, dwarfing the benefits.
As the tax bill comes into effect, and as income inequality widens in the long run, Baltimore’s low-income residents are most at risk. Our city should monitor the effects of the tax bill as they play out and find ways to protect our most vulnerable from its consequences.
Serena Goldberg (firstname.lastname@example.org) and Teresa Ng (email@example.com) are social policy students at Johns Hopkins University. Submit your own op-ed to The Baltimore Beat by emailing it to firstname.lastname@example.org.